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theodp writes "Forget the Summer of Code. If you've got a hot idea for a start-up, Newsweek says Y-Combinator, the boot camp where Silicon Valley meets 'American Idol', is the place you should be. 'Some critics scoff that Y Combinator's investment is peanuts for that amount of equity. But the opportunity is unparalleled -- total immersion into Silicon Valley start-up culture, advice from Graham and a fast track to the top angel investors and venture-capital funds. When Graham calls the winners, the founders have only five minutes to accept. "If people turn us down," he says, "as far as we're concerned they've failed an IQ test."'" We've previously discussed the program on the site, just over a year ago.

How much do you usually invest?
Usually $5000 + $5000 per founder. So $15,000 for two founders, $20,000 for three. Occasionally we invest more. The goal is usually to give you enough money to build an impressive prototype or version 1, which you can then use to get further funding.

This is peanuts. If this is all the money you're going to get, it's probably a better use of your efforts to keep your day job and do your startup on your own spare time.

No, the things like numbers of caps, etc., were all factors (whereas Graham's model only uses words). All of the factors were put into a large statistical space, from which it carved up the space into spam and not-spam regions. The only thing I'd have done differently was to allow arbitrary tokens, which I didn't need for the project since the spam database I was using already had the interesting tokens extracted. Someone else took my code and extended it for arbitrary tokens.The reason it worked better tha

Silver bullet for what? Bayesian filtering simply works. The thing is,
lots of people want a single filter to work for more than one person,
and then of course you'll get issues: What's interesting/spam for one
person is not the same as what's interesting/spam for another person, so
why should a single filter know?

But for those who use Bayesian filtering as intended (one filter per person,
teaching about errors when needed) there's no spam problem to speak of, and there hasn't been for years.

Silver bullet for what? Bayesian filtering simply works. The thing is, lots of people want a single filter to work for more than one person, and then of course you'll get issues: What's interesting/spam for one person is not the same as what's interesting/spam for another person, so why should a single filter know?

Bayesian filtering does not come close to the effectiveness of most of the commercial schemes I have used. Since I get over 3,500 spams a day (and 500 legitimate mails) I could not possibly tollerate even a 1% false positive rate. Currently I have less than 30 false negatives and essentially zero false positives. I do not check my junk mail folder, simply can't afford to.

Content analysis as pushed by Graham is much less effective than looking at other message features such as the headers, timing, etc. Bayesian learning is much less effective than other strategies.

Best paper at Graham's first spam conference was by an MIT undergrad from course 6 who completely debunked the whole notion with some rudimentary statistical analysis.

Best paper at Graham's first spam conference was by an MIT undergrad from course 6 who completely debunked the whole notion with some rudimentary statistical analysis.

I'm pretty sure the first thing to do when measuring false positives is to count them. Maybe that paper has some insight on how to do that without looking at them, but I'm still waiting for the.iso they distribute the proceedings by to finish

Content analysis as pushed by Graham is much less effective than looking at
other message features such as the headers, timing, etc. Bayesian learning
is much less effective than other strategies.

You don't know what you're talking about.
If you knew anything about Bayesian filters, you'd know that all information in a
message is/can be used: that includes headers, time stamps, etc. Even the spacing between words might be used depending on the filter.

You don't know what you're talking about. If you knew anything about Bayesian filters, you'd know that all information in a message is/can be used: that includes headers, time stamps, etc. Even the spacing between words might be used depending on the filter.

The claim made by Graham was that personal filtering based on Bayesian learning was the silver bullet. It isn't.

The performance of filters of the type described by Graham is considerably worse, orders of magnitude in fact, than filters that do not r

I'm not sure I can think of anyone for whom this would be a good deal, unless they knew pretty much for certain that their business would fail anyway. The kind of money involved is nothing in business, so it's all about the support and "mentor effect", and I rather doubt this is the right mentor for anyone who wants to become a tech billionaire. (Remind me again how many of today's top 100 tech start-ups Graham has helped to set up, an

I acknowledged the issue about smart people thinking about it before getting in touch with Y Combinator before. However, I think perhaps you miss my point: what they're offering, in real financial terms, isn't enough to make or break a business. As investments go, it's a low risk. But if a business does take off, the Y Combinator folks have a big profit on their hands for negligible investment. Is their advice really worth it? I'm not convinced, but hey, I'd turn down Y Combinator funding, so obviously I'm

Most live in San Francisco sharing ~$2700 2 bedroom apartments. I rented a house in Mountain View for $2000/month, because I have a girlfriend and a big dog and they like to have a little room (and my co-founder already leases a town home in Santa Clara and has a family). My cut of our $15k would cover three months of that along with my food and other expenses (just barely). It's entirely possible for folks who live frugally to live in the valley for three months for $7500. I lived a bit rich, by choosi

You're completely correct. First of all, the phrase "angel investor" should never be used to accompany a five digit figure --even "venture capital" is kindof out of place. Secondly, if they're investing (up to) $20k into a startup, it is they who are failing the IQ test. [in my experience] Serious venture investors want to see startups that have already bootstrapped a significant amount of funding (at least six if not seven figures), have PhDs onboard, etc. Now, obviously some industries and ideas have a much larger barrier to entry than others. For instance, I'm in the cinema field, where a cutting edge product might cost between $50k (low end) and $1M (high end). So designing, manufacturing (etc) these products has a much larger barrier than say, the guy who has a bright idea for the next digg.com or whatever web-two-point-oh site is hot this week (where $20k might actually pay a brilliant developer to write much of the code needed). But, even using the American Idol analogy-- if you were going to invest in a singer, someone who doesn't have any sofware/hardware development needed, just needs the cash to get into a studio and get recorded, that alone would cost more than $20k.

Twenty grand really is peanuts. Hell, some venture capital groups have proposal fees that can easily run a few thousand dollars (that the startup needs to pay just to present the business plan to them), not to mention cookie-cutter research [scri.com] for business plans alone can easily run $5-10k (I won't even get into custom research).

My advice if you need $20k of investment capital? Put it on your Visa (worked for Under Armor [msn.com]). Selling off a chunk of anything you genuinely believe to be a good idea should only be considered when you have no other available means to bring that idea to fruition.

Serious venture investors want to see startups that have already bootstrapped a significant amount of funding (at least six if not seven figures), have PhDs onboard, etc.

That's exactly the point of YCombinator - to get your startup to the stage where serious investors will even look at you.

The biggest draw is not the money, it's the connections, the advice, the hype and recognition you get for being a YCombinator grad, and the investor meetings they set up for you.

Precisely because the barrier to entry is so low on the web, getting people to take your idea seriously can be very valuable. I believe one of Paul Graham's arguments in favour of YCombinator is - which would you rather do, keep the 2-10% of a company that has few chances of succeeding, or give away 2-10% of a company with higher chances of success?

Most of the YCombinator projects are run by people in their mid-20s - not exactly experienced at running a business, and this is the point in life where connections and advice can be more valuable than standard of living.

Is it worth it for everyone? If you already have capital, connections, and a rock-solid business plan, no way. If you have a great idea and lots of energy, but you're not actually sure how to make it work, then it might be.

And yes, my co-founder for "the next digg.com or whatever web-two-point-oh site is hot this week" (see my signature) flew down to San Francisco about a month ago to pitch our site to Paul Graham & co. for this year's summer YCombinator. And no, we didn't get it (we weren't expecting to:p). It was a valuable experience nonetheless, we're working on something a bit more original now:p

I guess there are people out there who are inexperienced enough to think that "connections" are actually valuable. The reality is, if you build it, they will come- if its worth funding. Hell, I know billionaires and the ones who are open to funding new ideas are interested in hearing new ideas... you don't need "connections". And anyway, if you're building a web app, you do not need funding... the barrier for entry is so low these days all you need is a job delivering Pizza for your founders to cover the

Hell, I know billionaires and the ones who are open to funding new ideas are interested in hearing new ideas

A few moments elementary Googling, you're [yahoo.com] in Bellevue, Washington, so sure, you're in proximity to at least four of America's 372 billionaires [cnn.com].

But you post on YC's site, and comment [ycombinator.com] about how it's bad that Bay Area women are "skinnier (but more expensive)", of those that "want to date geeks". Complaining about women with expensive tastes isn't really the mark of someone has really climbed the finan

You misread his (typo'ed) comment. He's not saying he knows them personally; he's saying that he knows (as in believes to be a fact) that billionaires are (this is the typo, in place of "and") the ones open to funding new ideas.

I do know billionaires, more than one. Some of them are open to funding companies, but not all. (One is really just retired and winding down his commitments.) One, for instance, who is open to funding new ideas is actively looking for them and talking to people about them.So, if someone had a good idea and had moved it along to the point where it was worth funding, it would not be hard to talk to this guy.

No, I'm not interested in making connections or introducing anybody... my point is that this isn't

Actually, I think its only those without money who find the prospect of gold diggers to be exciting.the reality is, the higher your net worth, the more shallow (skinny) vapid women and men there are... the more you have to deal with idiots who have dollar signs in their eyes.

I know, your fantasy that as a millionaire you'll be able to keep a trophy wife is probably a key motivating factor in your life.

But if you ever achieve it you'll realize that, after taking half your net worth, the money you lost was th

This is why, if you ever start a startup, you really need to hire a really good salesguy. ITs clear to me that you don't know how to get your foot in the door of a mid-sized company-- even though I just told you in my original post in this thread. (Here's the secret- you call them. And I don't mean cold calling every c ompany in the book-- but identifying the businesses that are key and investing time in them.)Really, every business that is likely a potential customer of yours is likely also never going t

Ok, its clear to me that you haven't met many VCs. You think I'm just talking about the "bad" VCs. Sorry, they are all bad.Do some research and if you can get unbiased information about the "top tier" VCs, you'll find out I'm right there.

Furthermore, you really shouldn't be seeking VC money, unless you need to build a manufacturing facility. If you don't, you can bootstrap far more effecively. Truthfully, the bad advice from VCs will hurt you more than their money helps.

Paul Graham is the same guy who said he could calculate whether the patent system was a net win if given a couple weeks. This is something I've read more than one Ph.D. thesis on, but sure, a couple weeks sounds completely reasonable, Paul.

or remortgage your house. I'd never invest my money in a company where the founder wasn't prepared to risk his house to promote the company. If he doesn't believe in it that much, and it's *his company* why would anyone else go near it?

Actually, many investors in the valley wouldn't think very highly of your business acumen if you risked your house. Part of what investors look for is someone that is capable of recognizing low risk opportunities at low cost (the bigger the opportunity, the more risk and cost they're will to accept). Mortgaging ones house is a high cost and high risk action, with no solid upside. I'm not saying its the wrong way to fund a company, if you really have strong indications that it will pay off big, but I am s

the very last thing I would ever do is sell off part of my company to someone else to get a few pennies to grow it. There are plenty of sources (house included) that will lend you money without strings attached. If I wanted to make other people rich, I'd work for them, the whole point of having my own company is for me to be in charge, and me to benefit.

Sigh... this is what passes for intelligence in "the valley":"many investors in the valley wouldn't think very highly of your business acumen risked your house."When you buy a house you have a mortgage on it. Right off the bat you have "risked your house" and you haven't evne started a job.

When you borrow against the equity in your house, you're borrowing money at a reasonable interest rate, probably %8 or less.

On the other hand, when you borrow money from a venture capitalsit, you have to pay it back at a

Any engineer that can't write himself or herself a $5000 free for a year loan off their credit card doesn't have the financial IQ to start a company. Anyone who gives away equity for that paultry sum flunks that test. If the prototype is a success, you can always mortgage the house. If you can't do it in your spare time, take a leave or a long vacation.

Anybody who build their business on nights and weekends while working a fulltime job is someone who has shown a great deal of commitment. I've done this, its damn hard... its hard not to let the startup wither away because you're too busy with your day job, and its hard not to loose interest after even 3 months of spending all your time on your job or your other job with little time for anything else.Show me someone who built thier company that way, and I'll be interested in putting money in.

I was immersed heavily in SV startup hell back in 1995-2001. I will happily admit that I would now fail hs IQ test. I wouldn't touch that dead horse with a ten foot pole. These guys are living in the past. SV is no longer the hub it once was, nor should it be. The boom that happened there KILLED their cost of living. Firefighters and teachers were living in homeless shelters because the cost of living got so high. People are tired of that shit. Seriously, just move on. Branch out. There is no reason for every tech related startup to be cenetered in one tiny little community.

I work at a Silicon Valley startup that has been in existence for four years now.

It's funny in that the engineering team that I work with (who cannot afford a house) agree with your sentiment, but of course, the management team (who do have houses) refuse to even consider relocating the company (or a part of it). My informal poll has showed that everybody in the engineering team would gladly pick up and move if given the chance. This company has no need to be in the Valley, the customers that we are going after are either outside of the United States, or have offices nationwide, which are generally not in the Valley. The company founder could easily save money by relocating us.

I would gladly take a small pay cut to live and work in a nicer area with a lower cost of living, and be able to lead a better life. After this job, I'm out of the Valley, and not looking to return. There's too much BS in the Valley, and California as a whole.

Then this is what you should do. There are plenty of tech friendly cities with affordable housing and relatively low cost of living. Portland, OR; Austin, TX; Vancouver, BC; Raleigh-Durham, NC; Heck even Boston, Seattle and New York City are a steal compared to SV (if you live in one of the suburbs nearby). I lived in SV for 5 years and could not reasonably afford a house and family with developer salary (pure interest loans never sounded good to me); so I moved to Austin and managed to buy a house without much trouble and enjoy it a lot and glad I moved away from the valley (not to mention all the fun life outside of work which the valley sorely lacks unless you want to drive to SF every night).

Agreed. My wife and I are in Tacoma, I work in Redmond (yes yes, evil empire, etc). I commute, not too horribly, thanks to carpooling and HOV loans. I can leave home at 8, be at work by 9. I also just put down a deposit on a two story four-bedroom home for $1400/month.

I think you are a bit misinformed. Vancouver, BC has no affordable housing, houses get more affordable as you move to the suburbs, but Van is still expensive. The suburbs are slowly getting more and more expensive.

Few friends moved from Bay area to R-D and Charlotte, all 3 got salaries about 5%-10% lower than the valley and with cost of living about 40% lower and reasonable real estate prices, they are all happy so far. The toughest part is job hunting (implied move) and physically deciding to pickup your family and moving (much easier if you are single of course). The one in Charlotte actually told the company he will move himself knowing that they would almost match his salary and that housing costs are about hal

I guess the grass is always greener. I just moved to SV from Dallas and I love it here. The cost of living is a little higher but not that much worse than what it had cost me to live in Uptown Dallas. I like being able to do things outdoors here and being able to commute to work on my bike. I don't work at a startup but at a well established company so maybe that plays a part in our different experiences. Austin isn't that much cheaper than SV but you do have the no income tax advantage in TX. For me

WTF? You must have some really nice taste. The cost of living in the Bay Area, compared to Texas, is really dramatic. Its a hell of a lot more expensive.And I understand if you just moved to the bay area you may like it-- I say, give it a year and you'll be ready to leave.

I lived there 3 months and I quickly learned why it sucked... now I can barely make it 3 days on a business trip before I'm pissed off and ready to fly the hell out of there.

What, Joe, you don't like gov'nor Arnold?:DI think I'd move back to the Valley if I had a good enough opportunity, but I must admit that if I started a company (which is a serious possibility), I likely would stay in Toronto. There's a good community of VC's, engineering talent, etc. The cost of living isn't great (houses average C$ 350k), but it's better than Cali. And I'd probably find ways to use people in lower-cost areas where there's local talent, like Sudbury, North Bay, Ottawa, etc., though i

"If you want to apply, please submit your application online by midnight PST on Monday, April 2, 2007. Groups that submit early have a slight advantage because we have more time to read their applications."

A lot of VCs said rude/stupid/wrong/bulling/snide/nasty/thoughtless things during the dot-com boom because they could get away with it, such as one of my all-time-favourite turn-offs as a serial recipient of VC money: "We don't do NDAs", ie "Your ideas are not important so me might be careless with them"...What was more interesting was that these jerks weren't around during after dot-bomb, but money still was, and I got some of it.

These people might be fine, but anyone whose view of me is based on "He said

A lot of VCs said rude/stupid/wrong/bulling/snide/nasty/thoughtless things during the dot-com boom because they could get away with it, such as one of my all-time-favourite turn-offs as a serial recipient of VC money: "We don't do NDAs", ie "Your ideas are not important so me might be careless with them"...

There's a very valid reason why VCs do that. I've had my share of working with VCs, and while I despise them in general, the "We don't do NDA" reasoning is sound:
put yourself in a VC's shoes for a minute. Your job is to look at business plans and invest in ones that look interesting to you. So you will read hundreds of plans, speak with thousands of people who all come to tell you their idea. If you were to sign an NDA with every single one of them, you statistically are guaranteed to either infringe on it, or be perceived as infringing.

Take the following example: X comes to you with an idea. You reject X because the management team is weak (another perfectly valid reason). A few months later, Y comes to you with a very very similar idea. You like Y's management team and invest in it. As Y grows and becomes publicized, X reads about it, sees that you invested in it, and gets pissed off that "you stole X's idea!" Lawsuit.
Another example: You've been focusing on a certain field, say the Web 2.0 crap. You've by now gotten so much info, you've discussed it with so many companies, that when you're talking to X that came to pitch its idea, when you tell them why it'll fail you're probably going to say something that was covered under one of the dozens of NDAs you signed in the past year, but how are you going to know?

Signing NDAs would completely obliterate a VC's ability to operate. The problem is that most entrepreneurs are so obsessed about their idea being the one-and-only greatest thing ever that they aren't able to see the issue from a VC's perspective.

The VC is generally trustworthy on that particular subject, because it's in his/her best interest not to be known as someone who leaks sensitive info.

It's a pretty small community of people who know each other rather well. If the VC leaks or misuses confidential info, he'll lose trust and won't get in on the juiciest deals, which is what he's aiming for.

Generally the entrepreneur worries too much about people stealing his ideas, and not enough about how good the idea is, and how well it can be implemented.

In other words, if you say no, or demand to "think about it for 24 hours", you probably
might have an IQ that is too high to allow them to take advantage of you, and thus
makes you ineligible to be one of their patsies.

The smart people are the ones that after receiving the call, say
no, realizing that the idea has been vetted as having potential, and should run
with it on their own.

Yeah, they scored too high and thus know better than to sell their equity for peanuts. I mean, wealthy or not, what an arrogant twat.

total immersion into Silicon Valley start-up culture

I can imagine few worse things for starting a technology business than to be immersed in the incestuous and insular world of Silicon Valley. Most Internet users don't live in Silicon Valley, why would it be an advantage to be isolated from them?

When Graham calls the winners, the founders have only five minutes to accept.

And they are willing to admit such underhanded pressure tactics? Sounds like these guys are everything that is wrong with venture capital.

Yet there are always plenty of people with money prepared to hand it over to, or on the say so of, an arrogant twat. "Oooohh isn't he aggressive Mildred? I like THAT, excuse me sir, how many millions did you say you needed?"

Graham loves it when his little chicks take on the big birds. "These guys have written 40,000 words of code in three months!" he crows. "You never see that in a big company!"

Who counts by 'words' of code? Working for big companies, I've written several thousand lines of code in a day many times. It's not typical, but it's not quite rare either. Of course, after a writing flurry I'd usually spend the rest of the week pulling my hair out because of the bugs I had added.;)

The math for that is pretty reasonable. It's pretty easy to type that fast. However, most code time is spent thinking, testing, editing, refactoring, etc. and any code which doesn't have a good application of these habits is not worth writing. You're seriously better off doing things in smaller increments, especially with how human memory works. That's not always possible of course, but preferrable. I'd rather spend two days writing code than one day writing and the next three days fixing. It's especially d

Back in the mid-80's I was working on a truly fascinating program (a survey instrument data massaging thing). I started working on it on Friday evening. After working on it for a while, I realized that I felt sick. I wondered why; what's wrong with me... I ultimately realized that it was late Sunday evening and I had worked on this for the whole weekend, never leaving my basement and not eating or sleeping (or anything) for the whole time. I went out to the restaurant down the street and had something

But the opportunity is unparalleled -- total immersion into Silicon Valley start-up culture, advice from Graham and a fast track to the top angel investors and venture-capital funds.

Make no mistake: if you take VC funds, they, not you, get into the driver's seat. And it means that their priorities, not yours, are what will drive the company.

Back in the dotcom days, before the crash, it generally meant the VCs would attempt to groom the company for a quick IPO. That meant growing the company quickly and sacrificing the long-term viability of the company in order to do it.

It was common for the original founders of the company to be booted from the company or otherwise sidelined. The VCs would bring in their own executive management teams, all the way up to the CEO, which would answer only to the VCs, of course.

The end result is that the startups were unable to maintain their focus on their original mission and were vastly over-committed compared with their needs. And predictably, most of them tanked shortly after their IPO. The VCs usually made a nice profit when the companies IPO'd, but once stock investors finally realized what was going on, IPOs suddenly became worthless. And thus the dot-bomb ensued.

If I were the founder of a startup, the last thing I would do is take the money of a VC. That money is heavily tainted. Taking it would be akin to committing suicide. The only way I would take it is if it came with a contract that clearly stated that I would remain in complete control of the company as if I had not taken the funds at all. And I doubt any VC would ever sign such an agreement.

If I were the founder of a startup, the last thing I would do is take the money of a VC. That money is heavily tainted. Taking it would be akin to committing suicide. The only way I would take it is if it came with a contract that clearly stated that I would remain in complete control of the company as if I had not taken the funds at all. And I doubt any VC would ever sign such an agreement.

VCs sign such agreements all of the time. By definition if outside investors have less than 50% of the voting stoc

As many others point out, $10k-$25k for 5% in your company is ridiculous. It doesn't fund the company at all and they take a good percent of it. It's for suckers. A better deal would be something like $250,000 for 1-2 percent of the company plus resources. Then you could at least try.

$250k for 2% means a $12.5 million pre-money valuation. 1% is a $25 million pre-money valuation. For two no-name kids before the prototype? You're smoking crack. One thing that I think you've overlooked is that ideas aren't worth much by themselves. An idea along with the will and ability to build a company is what's worth something.

Now, I'm completely aware that early stage valuation is largely speculation and hand-waving, but I have yet to see a

Taking 5% of a company for TWENTY THOUSAND DOLLARS? Anyone who accepts that deal should be shot. Saying that "they failed an IQ test" just makes Graham out to be a fraud.

Also, and this is a personal pet peeve for me, he wrote "The Plan for Spam" in August 2002. Bob Boyer and I (Bill Kerney) while grad students at UC San Diego wrote a very similar statistical spam filter, which we open sourced and released in December 2000 (and which some people took and continued working on it). And we didn't invent the idea either -- we based our work on the UC Irvine Machine Learning Database.

And yet somehow he never corrects the notion that he invented the idea.

Taking 5% of a company for TWENTY THOUSAND DOLLARS? Anyone who accepts that deal should be shot

Oh but I'm sure this type of hustler will be quick to point out that if he takes 5% of your company for 20k, that means he thinks you are really worth FOUR HUNDRED THOUSAND DOLLARS! Isn't that amazing!? And that's without doing anything at all! Imagine what you will be worth in just a few years... etc, ad nauseam

Sorry, looks like I worded it wrong. 'That means he potentially thinks you are worth millions' should have been 'That means he thinks you are potentially worth millions'. Yes, he breaks even at $400k, but to balance out the risk that you go for nothing at all, he is betting that you will go for much more than 400k.

Here is a passage from one of his essays (which I think are very insightful):

A while ago an eminent VC firm offered a series A round to a startup we'd seed funded. Then they heard a rival VC firm was also interested. They were so afraid that they'd be rejected in favor of this other firm that they gave the startup what's known as an "exploding termsheet." They had, I think, 24 hours to say yes or no, or the deal was off. Exploding termsheets are a somewhat dubious device, but not uncommon. What surprised me was their reaction when I called to talk about it. I asked if they'd still be interested in the startup if the rival VC didn't end up making an offer, and they said no. What rational basis could they have had for saying that? If they thought the startup was worth investing in, what difference should it make what some other VC thought? Surely it was their duty to their limited partners simply to invest in the best opportunities they found; they should be delighted if the other VC said no, because it would mean they'd overlooked a good opportunity. But of course there was no rational basis for their decision. They just couldn't stand the idea of taking this rival firm's rejects.

Great excerpt and you should be modded up. Hypocrisy is such an easy disease to catch. I'd love to hear how Paul Graham reconciles his current actions against his owns words. No doubt referring to his own exploding termsheet as an "IQ Test" helps quell the cognative dissonance.

>>that means he thinks you are really worth FOUR HUNDRED THOUSAND DOLLARS! Isn't that amazing!?Note this is after you've already (from what I can tell from TFA) put together a business idea and they picked the top whatever percent of ideas. He's buying a chunk of your company for a couple pennies and a slap on the back, and then insulting people that don't think that's a great idea. It's not the offer that's necessarily insulting -- perhaps you really might only be worth a half million or so -- but ca

I'm sure there are plenty of dorm room nerds who could make something valuable for 20 thousand but can't convince the local bank to make a business loan for what amounts to a website. And a few might even take the deal. But you're right. This is the kind of cash I could come up with as a grad student. There's no point in taking the money if I believe the idea has wheels. If that's the kind of bad businesmen they're after, well then maybe Morris hasn't quite fully recovered from prison.Graham selling tactic

I was once turned down by Y Combinator, I met Paul Graham, he is arrogant and thinks he's the smartest guy in the world. I applied them because I was living outside USA, so it could be a good opportunity for me. But after coming to Silicon Valley, I saw that things are not so hard, you can easily access people you want here, so you don't need to give 10% of your company to this asshole (I respect his articles though). I'm very happy now that I was turned down, it allowed me to protect my shares.For a guy wh

As a Y-Combinator funded company, I can tell you that it's not about the money. The money is sufficient to get a prototype for real investments from Angels/VC's. The justification for the low valuation (~400k) is that it isn't a valuation. The 5% of equity is in exchange for a community of incredibly intelligent, passionate peers who are similarly coding for their lives and guidance from someone who knows the startup industry inside and out. PG is also incredibly well-connected; he'll get you in a room with

"When Graham calls the winners, the founders have only five minutes to accept. "If people turn us down," he says, "as far as we're concerned they've failed an IQ test."

If you accept in 5 minutes, you've failed an IQ test. These people are not that important, regardless of what they tell you, and neither is the amount of money they have on the table. This is an attempt at simple manipulation on the part of older investors looking for wage slaves that will ask how high when told to jump. Unfortunately, if you're a 20-something, they're targeting you.

Understand the strength of your signature and the committment it represents. Never, EVER, be afraid to walk away from a deal. It's a big planet and there are plenty of legitimate people to do business with.

point. Most of these companies are just at the idea stage. Most companies at the idea stage would give out 5% just for Paul Graham to be on their board of directors, which opens up Paul Graham's rolodex for making contacts in the industry. For kids coming out of college to get funded in this way is a huge springboard for their careers. It is a HUGE opportunity for these (mostly) kids that I thought the slashdot crowd would have some amount of respect for. Yes, it isn't a lot of money, and it is meant to put

Here's a quick and dirty run down of what one SHOULD do if they want to start a business.

There's a fork at the beginning of the road: Quit your job or keep your job and commit to your startup as best you can.

For the Quitting My Job crowd:1. Make an actual living at it ASAP. If you can't, then forget it. If others around you are, and you can't for some reason, there simply isn't the time to learn the hard knocks. Either way, you have about 12 months. You should, after 12 or so months, have a good idea if it's gonna work. If you can't make that decision on your own, then you are in dire need of some Management. You don't need to go to Paul Graham to get it.

2. AFTER you are making some money with a workable widget 2.0. reassess. From here, you work with a great clarity that is not available to a Paul Graham graduate. If you want the big VC $$ it will take a great deal of time, effort and money to get. In fact, it's probably a full-time job on its own.

For the Moonlighting crowd:You will need to work MUCH more smartly than the Quitting My Job starter because the pace of "ground breaking innovative Widget 2.0" is limited. If you are good at whatever you want to start, then there should be success despite the Job Quitter that is competing against you.

Your success STILL needs to be measured in dollars. Forget Youtube style VC burn for now, but concentrate on generating revenue. Despite working less at it, it MUST make money with a pretty clear path to replacing your salary and benefits.

________Tips for either group_________You must know what you need and how much you are willing to give away to get it. Hint: 5% is a whole heck of a lot of equity to put on the table.

Grow on your own revenue. Don't be tempted by the other ways to do it. If you have a good business, it will grow on its own.

There are too many barriers to youtube-like startups in the U.S. Seriously consider starting it someplace you'd like to emigrate. VC capital is wasted largely on lawyers in some way, shape or form in the U.S. If you are tempted by the conventional public offering, the amount of money the banks sucks up is absolutely shocking. This is one reason why Google cut some of the bankers out in their IPO.

Stay flexible. Chances are excellent what you started out doing for money will be somewhat different than what actually brings the money in.

Alright, there's a lot of misapprehension, and perhaps willful ignorance, of nearly every aspect of the Y Combinator model. I'm the co-founder of a company that was funded during the Winter Founders Program documented in the linked article (my company is Virtualmin, Inc., co-founded with Jamie Cameron).

First up, about the equity. YC asks for between 2% and 10%. Mostly, it's 5 or 6 percent. The companies funded are all quite early stage. It's very rare for one to be launched, and even moreso for it to be profitable. In some cases, it's no more than a mocked up demo. YC are very early stage investors, usually getting involved before anyone else will touch it--they invest in smart people, not really ideas or businesses. In the three months I've spent meeting once a week with the other founders, no one has ever even hinted that they regret giving up equity to YC. We certainly don't, and we're one of the few that had a launched product and paying customers.

The "5 minute IQ test" is being misconstrued. Applicants know well in advance exactly what the terms are going to look like. You don't bother applying if you don't like the terms, so you never get to the yes/no IQ test. I don't think anyone has ever turned them down at that stage. It's a good punchline, and makes for good magazine copy, nothing more.

Paul Graham is extremely smart. Wherever he goes crowds gather round, and it's not just for his boyish good looks. He's got a touch of ADD, at this point, due to his popularity, but we've never had trouble getting advice when we needed it, and his advice has generally been spot-on. YC has three other partners, two of whom (Jessica and Trevor) were as deeply involved as Paul during WFP. Paul's celebrity leads to a ridiculous array of speakers at the weekly dinners...He has an uncanny knack for bringing in the most interesting people in the valley: Joe Kraus (Excite, JotSpot), Evan Williams (Blogger, Twitter), Paul Buchheit (Gmail), Greg McAdoo (Sequoia), Ron Conway (largest angel investor in the world), etc.

Which brings me to contacts. If you believe contacts don't mean anything, you're fooling yourself. I started a business outside of the valley in 1999, and now I've started one in the valley. Big difference. I paid my bills and bought myself a nice car with my previous business. I have much higher expectations with my current business, and a large percentage of those expectations have been brought nearer by our affiliation with YC. Try dropping a random investor an email sometime, to arrange a meeting to tell them about your great business. We've never received a "no thanks" to such a meeting, and I've been hearing from fellow YC'ers that they've always gotten the meetings they wanted (not just random VCs...they're talking to exactly the people they want to talk to). We're in talks with our first choice VC and it's going very well, and at least three of the other companies have already closed rounds. If you are in Y Combinator you increase your chances of getting funded by a good investor by a huge amount (and let's be clear: A bad investor brings nothing but money and disaster will follow...the right investor brings more contacts, good advice, expertise in the right areas, and also money...with the right investor your odds of explosive success are remarkably higher). YC brings the best contacts in the industry.

Some other bits that aren't obvious unless you think it through and actually read the YC information on their page:

YC pays for the incorporation and all legal stuff for issuing shares. It's about ten grand worth of legal work from a top valley firm.

YC feeds the company founders every Tuesday night for three months. Paul cooks the meals personally (I've seen it with my own two eyes). These dinners are the single most valuable aspect of the program (aside from providing the motivation needed to get people out to the valley). Chatting with fellow founders every week about what you're working on, what they're working on, and exchanging ide

Ah, yes, one of the members of the cult comes here and tells us that we're all stupid and of course, the only reason we would disagree with the preaching of the cult is because we were turned down for membership.Well, sorry to burst your bubble, but there is no way I would have applied to YC, so there's no way I could be jealous of having been turned down. (Plus, $15,000 is less than I have in cash on hand, not a meaninful equity investment.)

Every startup needs these ingredients. Good people, good ideas & capital are in short supply. I left out technology because it's is a commodity. Throw enough money at a technical problem and it gets solved. YC doesn't seem ideal for everyone but can still be valuable and help hone your people & ideas. $20k is a paltry amount but legal fee's are included. Advice among your peers and veterans in the industry would be invaluable.